Integration of SME into Agribusiness Global Value Chain - DTN · Integration of SME into...

Integration of SME into Agribusiness

Global Value Chain

Chackrit Duangphastra,PhD

Director of Transportation Institute , Chulaongkorn University, Thailand

Chackrit Duangphastra, PhD 1

The Integration of SMEs in

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Agribusiness Global Value Chains 2016

March 7 – 8, 2

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Outline of Presentation

Global Value Chain (GVC)

in agricultural business

Research finding on the

promotion of participation

of SME in Agro business in

GVC in APEC region

Way forward for SME

involvement in APEC GVC



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Global Value Chain : GVC


Full range of activities that are required to bring a product from its concept, through its design, its sourced materials and intermediates inputs, its marketing and distribution, and its support to final consumer in international context.

Increasing GVC activities in Agro based industry resulting from growing local and international market demand, more production in some countries needed for export, seek greater competitiveness from globalization to lower production cost, labor, tax incentive, better logistics connectivity, and trade and investment liberalization


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Snapshot of development of Agro based and

Food Industry in Thailand


Prior to 1960: production to serve local demand Employed low technology and local wisdom to preserve food and little link to

global market

1960 to 1970: start production to substitute import Import raw materials and technologies to start modernize production system

such as canned food, sweeten condensed milk

1970 to 1980: start exportation Start exportation but still lack of production skills and lack of standard and quality

improvement

1980 to 1990: growing period Used labor cost competitiveness and import high technology from Europe and

APEC economy. Economy of scale and OEM is key. Product champion: canned seafood, rice, canned and processed fruits, frozen chicken and frozen seafood

1990: trade liberalization and greater international competition More competition from lower cost agro based makers

Value added and quality standard are key issues.

Pressure from MNC and buyer to show food safety and quality standards such as ISO and HACCP


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New Challenges for Agro Based and Food

Industries in Asia


Food safety and Food quality are outstanding issues to doing business

From Farm to Table Value Chain

Need market diversification and product diversification to avoid competition

Labor shortage

Attitude to work in agro based and food industries compared to other production and service sector such as telecom, banking, automotive sectors, and E-commerce

Too many standards

CODEX, HACCP GMP, Low Acid Canned food, Seafood standard, Animal welfare, Halal, Greendot, and more to come

Non Tariff Measures, especially SPS, contamination, product standard, accreditation, labor and environmental issues


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Analysis of Diamond Model to realize competitiveness

Demand Conditions (+) Various patterns of consumption (ready to eat, ready to cook, eat out)

(+) consumer sophistication

(+) competition in food retails and franchise increase consumer sophistication

(+) Production gradually move from PUSH to PULL

Factor Conditions (+) local raw materials are available

(-) labor shortage

(-) lower quality of soil and water

Supporting Industries (+) emergence of production cluster and contract farming

(-) many trade association (but limited link to unorganized SME)

(-) R&D and investment in technology is limited

(-) only supply chain but no supply chain management

Strategy, Structure and Rivalry (+) Value added, quality improvement, focus on production and distribution standard

(-) lack of branding

(-) complicated government procedures along international value chain


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Big players in Agro based Business in APEC:

Food Processing


Players from APEC Food processing

USA: Mondelez International, Archer Daniels Midland, Kraft Foods, Tyson Foods, Campbell Soup, JM Smucker, Coca-Cola, Pepsi Co

Singapore: Olam International, Golden Agri Resources , Wilmar International

China: China Mengniu Dairy, WH Group, Inner Mongolia Yili, Tingyi Holding, New Hope Liuhe

Taiwan: Uni President

Korea: CJ group

Thailand: Charoen Pokphand Foods, Thai Beverage

Malaysia: IOI Group

Japan: Nippon Meat Packers, Asahi Group, Kirin Holdings, Ajinomoto, Meiji Holdings

Players from Non APEC but located in APEC region Food Processing

Switzerland: Nestle

Denmark: Carlsberg

Netherlands: Heineken


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Food Retail


Players from APEC Food retail

Japan: Seven & I Holding, Aeon

Australia: Wesfarmers, Woolworths

USA: Kroger, Sysco, Whole Foods Market,

Thailand: CP All

Taiwan: President Chain Store

Players from Non APEC but located in APEC region Food retail

France: Carrefour

UK: Tesco

Netherlands: Royal Ahold


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Restaurants


Players from APEC

Restaurants

USA: McDonald’s, Starbucks

Players from Non APEC but located in APEC

region

Restaurants

France: Carrefour

UK: Tesco

Netherlands: Royal Ahold


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Global Value Chain of Thai Rice

29% The Integration of SMEs in

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Global Value Chain of Thai Cassava


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Global Value Chain of Thai Fruit


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Global Value Chain of Thai Processed Fruit

8 8


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Global Value Chain of Thai Shrimp

8% 8%


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Global Value Chain of Thai Processed Seafood

8 8


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Global Value Chain of Thai Chicken

3% 3%


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Global Value Chain of Thai Sugar

11% 11%


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Critical Success Factors for developing Global

Value Chain


Identify Value from Chain

Assess scenario of competitiveness within sub sectors

and prioritized value chain or cluster

Actors in global value chain from producers to

consumers. Alliances are important

Direct Actors who are members of chain through which product

moves (such as harvesters, traders, manufacturers and

consumers)

Indirect Actors who influence marketing of products (such as

researchers, government, NGOs)


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Dr.Chackrit Duangphastra 22

Procurement

Research and Development

Human Resource Management

Firm Infrastructure

Inbound

Logistics Operations Outbound

Logistics

Sales &

Marketing

Service

The Value Chain

Global Value Chain extended from Normal Value Chain to Incorporate Stakeholders and Opportunities and Risks in International Production and Marketing Networks

Customer Value

Different between

what is paid & benefits gained


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Value Proposition Product

Performance, quality, features, brand, selection, search, easy to use, safe

Price Fair, visible, consistent, reasonable

Access Convenient, location, nearby, at-hand in a

reasonable time

Service Ordering, delivery, return, check-out

Experience Emotional, respect, atmosphere, familiarity,

fun, relationships, community, ambience

Competitive Advantage

• Availability

• Cost

• Differentiation

• Flexibility

• Speed

• Continuous Improvement

SME SME

SME LE

Group SME LE

LE LE


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1. Value for the Consumer

2. Efficiency, Effectiveness, and

Differentiation

3. Shareholder Value

4. Demand and Supply Planning

5. Leverage Tools and

Technology

6. Seamless Integration

7. Core Competencies

8. Outsourcing a Strategic

Alternative

9. Security and Visibility

10. Global Mindset and

Capabilities

11. Change and Reinvent

The Ten+1 Promises of for SME

involvement in Agro Based GVC


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Leverage Tools & Technology

Demand Visibility to Drive Supply Chain

Suppliers Mfg. Plant Mfg. DC Retail DC Store Consumer

Seamless Supply Chain Visibility

Accelerate the Supply Chain

Gain a Competitive Advantage

Real Time Visibility

Replace Inventory with Information

Lower Supply Chain Costs

Improve Forecast Accuracy and Increase Perfect Orders

Forecasts Suggested Orders


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Effective Supply Chains Should Strive

for “Full” Collaboration

Manufacturer #1

Retail Store #1

Distributor #1

Supplier Network #1

Retail Store #2

Distributor #2

Manufacturer #2

Supplier Network #2


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Example Functions Being

Questioned for Core

Competency

Manufacturing

Transportation

Warehousing

Information Technology

Order Management

Integrated Logistics Services

Business Process (BPO)

Core Competencies: Three Questions Each

Supply Chain Organization Should Ask Itself

Do We Have The

Skills We Need? If Not,

How Do We Get Them?

Expertise

Consistent With

Organizational

Mission? Is It a Good Use

of Our Resources?

Strategic

Fit

Ability to

Invest

Is the ROI

Attractive?

What’s The Best

Way to Do It?


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Not understanding customers’

needs

Lack of synchronization and

collaboration upstream/

downstream in supply chain

Absence of visibility

throughout supply chain

Too much focus on meeting

objectives of individual supply

chain organizations

Lack of integrated information

technologies

• Continued existence of “functional silos” within supply chain organizations

• Insufficient senior executive attention to logistics and supply chain issues

• Reluctance to search for and implement innovative, creative customer-focused solutions

• Challenge of dealing with supply chain complexity

• Inability or unwillingness to change

Ten Impediments to Getting ‘Change’

from Supply Chain Management


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Integrating and Managing Processes Across the Supply Chain S

up

ply

Ch

ain

Bu

sin

es

s P

roc

es

se

s

Tier 1 Supplier

Tier 2 Supplier Logistics

Purchasing Marketing & Sales

R&D

Customer

Consumer/End-user

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

PROCUREMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS

PRODUCT FLOW Production Finance

Manufacturer

Information Flow


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Global Food Supply Chain Challenges

• Understanding consumers needs

• Forecasting consumer trends

• Determining supply capacity

• Balancing supply with demand

• Benefiting from the global market

• Ensuring food safety

• Ensuring food quality

• Driving supply chain efficiency


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Food Supply Chains

Business Suppliers Customers Supplier’s

Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer


Supplier

Customer’s

Customer

Business Chain

Category Chain

Logistics Chain

Planning Chain

Information Chain

Transactional Chain

Inventory Chain

Food Safety Chain

Management Chain

Technology Chain


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GVC brings opportunities and change to SMEs


GVC brings opportunities (sometimes pressures) to SMEs.

Reorganization of production at international level, through increased outsourcing and development of GVC, effects on SME suppliers. New niches for supply of products and services continuously emerge from fragmentation of products, where small firms can quickly position themselves, exploiting flexibility and ability to move fast

Key benefit of SME Participation in GVC enhances SME internationalization and growth

SME focusing on multipurpose technologies have secured their position in market by becoming specialized suppliers

SME increasingly choose to outsource, even offshore, non core activities to gain competitiveness from production rationalization

Cooperation with partners upstream and downstream improves small firm’s efficiency

Innovating and keeping up with new technologies are required


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GVC brings opportunities and challenges to SMEs


Key challenges of SME Awareness and understanding of structure and dynamics of

GVC by SMEs

Major of SME across different countries are not able to identify competitive strengths within value chain

SMEs are mainly concerned with both inadequate availability of managerial and financial resources, skill, and inability to upgrade, protect in-house technology and to innovation

Compliance with strict product quality standard required to participation in GVC

SMEs want frameworks that assist them to better manage their intellectual property

To Move up GVC, SMEs need to take up larger and more complex set of tasks as well as formulate value chain cluster.


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Q&A

Thank you

Chackrit Duangphastra, PhD



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